Saturday, August 31, 2013

The rumored sale of Vodafone’s stake in Verizon Wireless, estimated at between $100 billion and $130 billion, could trigger a widespread wave of mergers in the European and broader global telecom business, many now believe.

Obviously, after paying taxes, Vodafone would have a huge war chest that is expected to be used to reduce debt and free up capital to invest in network infrastructure. Some speculate some of the proceeds could be used to pay a special dividend to shareholders.

But most also expect Vodafone would look to reinvest some of the proceeds in acquired assets. But Vodafone either will “eat” or “be eaten,” others spectulate.

AT&T could pay about 80 billion pounds ($124 billion) for what’s left of Vodafone, according to Robin Bienenstock, an analyst at Sanford C. Bernstein, basing her estimate on a valuation of six times earnings before interest, tax, depreciation and amortization.

AT&T has examined takeover candidates including Vodafone, U.K. mobile carrier EE (a joint venture between Deutsche Telekom and Orange), as well as parts of Spain’s Telefonica.

That might strike some as odd, given the declining amount of revenue being earned by European mobile service providers. But AT&T seems to be thinking, as does SoftBank’s Sprint, about ways to boost revenue by emphasizing fourth generation Long Term Evolution services.

Whether Vodafone is a buyer or seller, a huge rearrangement of assets now is conceivable, essentially forcing all the major players to weigh moves of their own.

The upshot could be an accelerated transformation of Europe’s troubled telecom industry.

Across the European Union, there are far more than 100 mobile and fixed-line operators, owned by a jumble of more than 40 groups, according to consulting firm IDATE. That compares with just four big mobile operators in the U.S., where the cable-television and broadband business is consolidating, too. As a result, revenue and profit at many European telecoms has been falling in a stagnant economy.

The biggest turning point in the European landscape has been Telefónica SA’s agreement this summer to buy the German mobile unit of Dutch telecom Royal KPN NV in a €8.55 billion ($11.4 billion) deal.

“This is the starting gun,” said Robin Bienenstock, an analyst for Bernstein Research. “The chessboard is going to reform really, really rapidly.” The potential mergers could make mobile service provider operations bigger, wed fixed line networks and mobile networks and reduce the number of leading contestants in many markets.